Answer:
By making decisions based on marginal analysis, I can guarantee that every set of inserts produced yields a profit. If profit margins for any insert pair fall below zero, I will need to reduce production. Grasping these margins will also keep me ahead in a market with potential competitors. In case more producers join the market, I can readily adjust prices downwards or provide discounts while still ensuring profit maximization.
Explanation:
Answer:
IRR = 14.96%
The project should be rejected, because the calculated internal rate of return falls short of the required return (14.96% < 16%).
Explanation:
The internal rate of return (IRR) is an essential calculation in capital budgeting for assessing potential investment profitability. The IRR rule guides whether to pursue a project or investment, stipulating that if the IRR exceeds the minimum required return, the project should be accepted. Conversely, if it’s lower than the cost of capital or the requisite return, the project should be turned down.
The formula used is as follows:
$0 = (initial investment x -1) + CF1 / (1 + IRR) ^ 1 + CF2 / (1 + IRR) ^ 2 +... + CFX / (1 + IRR) ^ X
Initial Investment = Total initial investment costs year x-1
CFx = Cash Flow during period X
IRR = Internal rate of return
Due to the nature of the IRR formula, it cannot be computed analytically; it must be derived through trial and error or via specialized software for IRR calculation.
In this instance:
IRR = -27200 + 11200 / (1 + IRR) ^ 1 + 14200 / (1 + IRR) ^ 2 + 10200 / (1 + IRR) ^ 3
IRR = 14.96%
The company should not proceed with the investment, as the calculated IRR is less than what is required (14.96% < 16%).
Response:
Clarification:
Last year's customer orders totaled 15000
Predicted orders for next year with a 15% rise = 15000 x 1.15 = 17250
Each customer order takes 1.5 hours to fulfill
Total time needed to satisfy customer orders = 17250 x 1.5 = 25875
Knowing that the standard work year comprises 2000 hours
Hence, the effective work year with a 2% capacity cushion
= Standard work year x ( 1 – Capacity cushion %/100)
= 2000 x 0.98 = 1960 hours
Workers required by manager
= Total time needed for orders / effective work year
= 25875 / 1960 = 13.20, rounded to 13
Thus, the manager will require 13 workers next year
